. Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 10.7% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

$982.48

Step-by-step explanation:

The maximum price you should pay would be the present value of the bond including its cash flows. That is how the price of a bond is computed.

The formula to calculate the price of a bond is;

The payments are semi annual so the variables will need to be converted to semi annual variables.

Coupon payment = 9.5% * 1,000 * 1/2

= $47.50

Number of periods = 20 years * 2 = 40 semi annual periods

Yield = 9.7%/2 = 4.85%

Price = $982.48

$982.48 should be the maximum price you should pay.

Alternatively, use a financial calculator and input the variables as;

Future Value = $1,000

Payment = $47.50

Number of Periods = 40

Rate = 4.85%

(0,-3) see attached graph

step-by-step explanation:

a. to solve the system, graph the two equations.

x = y+3 becomes y=x-3 has m=1/1 and b=-3. start at (0,-3) on the y-axis and plot a point. then move up 1 unit and 1 unit to the right. plot a point and connect.

y=-4x+3 has m =-4/1 and b=-3. start at (0,-3) on the y-axis and plot a point. then move down four units and to the right 1 unit. plot a point and connect.

the solution is the point (x,y) where the two lines intersect. by the graph below it is (0,-3).

b. to solve by substitution, substitute y = -4x-3 into x= y+3

x= (-4x-3) +3

x=-4x

5x=0

x=0

now substitute x = 0 back in to find y.

y= -4(0)-3

y=0-3

y=-3

solution is (0,-3)

c. use elimination by adding the equations together.

x-y=3

4x+y=-3

5x=0

x=0

then substitute into one equation to find y.

y=-4(0)-3

y=-3